Question 22

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In futures markets, marked-to-market is a process of the clearing house whereby:

Select one:

a. Each futures traders position is updated according to the average market price determined over the day

b. Each traders position is adjusted according to the market price determined at the close of each trading day

c. Each futures traders opening position is closed out at the end of the trading day

d. Funds are returned to each futures trader that earns a profit

e. Funds are demanded from each futures trader who incurs a loss

Question 23

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What is likely to happen to the goods of New Zealand companies exporting to Australia if the Australian dollar appreciates?

Select one:

a. NZ goods exported there, should cost less in Australia and so Australians may buy more of them.

b. NZ goods exported there, will cost more in Australia and so Australians will buy more of them.

c. NZ goods exported there, will cost more in Australia and so Australians will buy fewer of them.

d. New Zealanders will buy more foreign goods.

e. The prices of New Zealand goods sold in Australia will not be affected.

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Question 24

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If the forward exchange rate of the Japanese yen in terms of the New Zealand dollar (JPN/NZD) is lower than the spot exchange rate:

Select one:

a. Japanese interest rates must be higher than New Zealand interest rates

b. The terms currency is at a forward discount

c. New Zealand interest rates must be higher than Japanese interest rates

d. The base currency is at a forward premium

e. Market participants must be expecting the New Zealand dollar to depreciate against the yen

Question 25

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If the UK pound depreciates against the New Zealand dollar:

Select one:

a. The UK consumers gain by a decrease in the pound price of New Zealand exports to UK

b. The UK consumers lose by an increase in the pound price of New Zealand exports to the UK

c. UK businesses gain by an increase in the New Zealand dollar price of exports to New Zealand

d. None of the given answers

e. New Zealand consumers lose by an increase in the dollar price of UK exports to New Zealand

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Question 26

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In relation to foreign exchange and risk management, which is correct?

Select one:

a. A forward exchange rate is calculated as the spot rate minus the net interest differentials for the countries of the currency pair

b. FX risk can be classified as transaction, translation, price and credit exposures

c. A correlation coefficient of -1.0 for two currencies means when one currency is appreciating, the other is also appreciating

d. If a New Zealand company issues yen-denominated bonds in Japan, it is not exposed to foreign exchange risk

e. A money market hedge involves establishing an opposite hedging position to the original situation exposed to FX risk

Question 27

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In relation to foreign exchange rates:

Select one:

a. Under PPP, a country with a higher inflation rate relative to another country can expect its currency to appreciate

b. Given NZD/USD six months forward points are 0.0032-0.0027, this means the base currency is at a forward discount

c. Companies with multiple FX cash flows should pay the individual transactions immediately, rather than collate and net them

d. An external risk management strategy is when an exporting firm to invoice its foreign transactions in the home currency

e. If a countrys rate of growth then increases its demand for imports, then its currency should decrease

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Question 28

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Which of the following about FX markets is NOT correct?

Select one:

a. Given AUD/JPY82.50-60 and AUD/EUR0.5905-15, the cross-rate is EUR/JPY139.48-88

b. If the AUD/USD exchange rate moves from AUD/USD0.450-55 to AUD/USD0.9502-09, the Australian dollar has appreciated

c. If a FX dealer is short a currency at the end of the day, then she will need to sell the spot FX currency to settle the existing FX contract when the contract falls due at day end.

d. There is a significant relationship between changes in relative growth rates in national incomes and exchange rates

e. For two currencies that have a correlation coefficient of 0.0 there still may be FX risk between the currency pair

Question 30

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A large company that uses cocoa to manufacture chocolate could use the futures market to lock in the price of cocoa in an example of:

Select one:

a. short sale

b. a long hedge

c. a short hedge

d. purchasing futures to protect against a potential loss

Question 31

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If a share fund manager expects the share market to fall and wants to hedge his portfolio, then in the futures markets they:

Select one:

a. Is expecting the prices of the underlying financial instruments to rise

b. Can enter into a long position in financial futures contracts.

c. Can enter into futures contracts and the obligation to receive the underlying financial instrument at the specified future date

d. May enter into a financial futures contract and have the option to deliver or receive the underlying financial instrument at the specified date

e. Can enter into a short position with financial futures contracts

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Question 32

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A major advantage of forward contracts over futures contracts is that forward contracts:

Select one:

a. are more liquid

b. are more flexible

c. are standardised

d. are marked to market every day

e. have more transparent pricing

Question 33

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All other things held constant, the premiums on both put and call options will increase when:

Select one:

a. their exercise prices decrease

b. the volatility of the underlying asset increases

c. their time to maturity decreases

d. the futures prices increase

e. the time to expiration decreases

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Question 34

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As a hedger, you buy a futures contract for a 90-day bank bill at 92.80. Then if market price moves to 93.50, you will have:

Select one:

a. lost money on your long position in the future contract

b. lost money on your futures contract that cancels out any profit on an actual 90-day bank bill if you closed out

c. gained money on your long position in the future contract

d. lost money on your short position in the future contract

e. gained money on your short position in the future contract

Question 35

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In a call option contract, the:

Select one:

a. Buyer will choose to exercise his option only if the value of the underlying security falls

b. Buyer of a call has to receive the instrument at a specified time

c. Seller may choose whether or not to deliver the instrument at a specified time

d. Seller of a call option has the obligation to deliver the instrument to the buyer at a specified time

e. The writer may receive the instrument at a specified time at maturity

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Question 36

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A large company needs to borrow a large amount of long-term funds in six months time and is worried that the cost of funds might rise in the meantime. It can hedge this possible rise by:

Select one:

a. buying futures contracts on Government bonds in the futures market

b. selling futures contracts on Government bonds in the futures market

c. buying Government bonds in the spot market

d. buying 90-day bank bills

e. taking an arbitrage position on futures contracts in the futures market

Question 37

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In relation to swaps:

Select one:

a. A swap transaction involves two parties contracting to swap a set of interest rate cash flows based on the fixed rate payer

b. A basis swap is where a company enters into a contract to swap floating for fixed rate debt

c. To reduce settlement risk at each interest payment date the swap parties pay each other the full fixed-interest and floating-interest payments each time.

d. If a swap party pays a floating rate to one bank, receives a fixed payment from another party and pays a fixed interest rate to another party, it ends up with a floating rate swap

e. For a vanilla swap, the floating interest rate is called the swap rate

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Question 38

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Which of the following about derivatives is NOT correct?

Select one:

a. An open futures contract can be closed out by buying or selling an identical contract but opposite to the initial futures contract

b. In relation to futures markets, buy and sell orders are placed through market dealers

c. Futures contracts are marked-to-market at the end of each day

d. Forward contracts are products offered by banks

e. A futures markets trader must pay an initial margin to the futures exchange clearing house

Question 40

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Large companies with temporary cash surpluses interact with companies with temporary cash deficits in the:

Select one:

a. share markets.

b. capital markets.

c. futures markets.

d. money markets.

e. cash markets.